Answer: undervalued compared to Company Y

## Explanation To determine relative valuation, we need to compare Company X's P/E ratio with Company Y's P/E ratio: **Company X:** - EPS = $2.00 - Stock price = $33.00 - P/E ratio = $33.00 / $2.00 = **16.5** **Company Y:** - P/E ratio = **18** **Analysis:** - Company X P/E = 16.5 - Company Y P/E = 18 Since both companies have similar operating and financial profiles, they should trade at similar P/E multiples. Company X has a lower P/E ratio (16.5) compared to Company Y (18), which suggests Company X is **undervalued** relative to Company Y. If Company X were fairly valued, it should trade at a P/E of 18, which would imply a stock price of $2.00 × 18 = $36.00. Since it's trading at $33.00, it's undervalued by approximately 8.3%.

Author: LeetQuiz Editorial Team